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The Rise of the PPA
ThinkEquity’s latest GreenTech Newsletter confirmed what all of us in the California solar industry are witnessing firsthand: (1) the California Solar Incentive is “the locomotive hauling the nation into the global PV market” and (2) the beginning of true mainstream adoption of onsite solar power facilitated by the rise of the Power Purchase Agreement (PPA).
In the last few weeks, we’ve seen large solar commitments by two signficant retailers. Kohl’s Department Stores announced it would cover 75% of its California stores in the coming years–at an average store size of 88,000 sf that pencils out to somewhere between 20 and 30 MW of solar installations for one customer alone. That announcement was followed by one from Walmart providing notice of a 22-store solar pilot project in California and Hawaii estimated at 11MW. Target also announced a smaller scale pilot in the same time frame for several of its California stores.
These deals are remarkable for their size, who’s buying, and why–and it’s these aspects that demonstrate why I consider this a sign of a mainstream market adoption trend. In an earlier post, I explored the idea of mapping technology market adoption models to greentech markets. One of the key purchase behaviors that distinguishes early adoption from mainstream adoption is buyer motivation. Mainstream customers are pragmatic buyers who’s purchase rationale is to secure an important business advantage. Kohls, Walmart, and Target are buying solar power for two principal reasons: (a) energy is one of a retailer’s biggest controllable operating expenses, and (b) as consumer-facing brands they benefit from associating green values closely (and credibly) with the customer experience. That combined with the scale of the commitments is enough to convince me that these qualify as mainstream behavior markers.
I remember once talking with an operating executive at a large grocery chain several years ago who told me that his company “made money by saving money.” In thin-margin, competitive industries, understanding and capitalizing quickly on opportunties for saving is a key part of maintaining a competitive edge. That’s why the PPA is such an important part of this market picture. Mainstream buyers seeking competitive advantage typically do not want to invest capital directly in a solar power system because they can’t control enough of the operating risks to guarantee a sufficient economic return. It makes much more sense to hire an expert vendor to own and operate the system — and then buy the energy at a competitive rate as it is needed (locking in predictable energy prices).
Based on what my company, Recurrent Energy, is seeing out there in terms of interested buyers and deal opportunities, I think we’re going to see more announcements soon that will continue the mainstream trend. For those of us who’ve dreamed about this since 2001 when California’s first solar incentives launched, it’s a welcome development indeed!
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